The sanctions imposed by the EU following Russia's invasion of Ukraine: five things you need to know

The EU imposes sanctions for the purpose of bringing about a change in policy or activity by a targeted regime, person, industry or entity, engaged in unacceptable behaviour. EU sanctions are binding on EU nationals as well as persons located in or doing business in or from the EU.

The objectives of the EU’s common foreign and security policy are:

• To safeguard the EU's values, fundamental interests and security
• To promote international peace and security
• To prevent conflicts
• To consolidate and support democracy, the rule of law, human rights and principles of international law
• To prevent conflicts and strengthen international security.

More information about sanctions can be found on the websites of the European Commission and the Council of the European Union as well as in the Sanctions Guidelines, approved by the Council.

Please note that sanctions often trigger counter sanctions. Russia has announced that it will impose countermeasures and imposed import restrictions and/or bans on certain foreign products (mainly agricultural, horticultural and fishery products) in response to the sanctions imposed by the EU on Russia following the annexation of the Crimean peninsula and Sevastopol in 2014.

To date, the Council of the EU has imposed four far-reaching sanctions packages in response to Russia’s invasion of Ukraine, including:

• Excluding seven Russian banks from the SWIFT system
• Banning all transactions with and freezing assets belonging to the Russian Central Bank
• Limiting access to EU capital markets and trading venues for certain Russian banks and companies
• Freezing assets belonging to Putin, Lavrov and several other entities (including certain Russian banks) and individuals associated with the regime and persons responsible for the invasion of Ukraine
• Significantly limiting the financial inflows from Russia to the EU, by prohibiting the acceptance of deposits exceeding EUR 100,000 from Russian nationals or residents, the holding of accounts of Russian clients by the EU Central Securities Depositories, as well as the selling of euro-denominated securities to Russian clients
• Export bans on dual use goods, and bans on goods related to oil refinery, transport, aviation, space industry and high tech sectors, including a prohibition on providing related services
• Export bans on EU luxury goods to Russia
• Import bans on key goods in the iron and steel sector from the Russian Federation
• A ban on new European investments in Russia's energy sector (covering all investments, technology transfers, financial services, etc.)

An overview of the sanctions imposed by the European Council in response to the crisis in Ukraine can be found on the Council's website. 

The EU Sanctions Map can be a useful tool and contains links to the applicable regulations and guidance. However, since the regulations are changing quickly, it can be challenging to determine which sanctions are currently applicable. 

The EU publishes consolidated versions of the sanctions regulations, but please note these are currently not up to date. We therefore recommend consulting the Commission's press releases and the official versions, when published, which can be found on Eur-Lex.

Financial institutions are often familiar with the applicable sanctions regulations and have a robust administrative organisation and internal controls (AO/IC) in place to flag sanctions’ implications and prevent violations. However, sanctions may also affect internationally operating companies that have less experience dealing with sanctions. Companies active in targeted sectors, such as the oil refining, transport, aviation, aerospace, high-tech, and luxury goods sectors, should carefully assess how the sanctions impact or could impact their daily business, also taking into account the end user of these products (see also #4). The annexes to the regulations contain detailed lists of goods falling under the sanctions, while the text of the sanctions themselves describes the applicable prohibitions.

In addition, it should be noted that the provision of financial or technical assistance, brokerage services or involvement in making certain arrangements may fall under the restrictions as well.

If your business operates in a targeted sector, sells products subject to restrictive measures, or provides any services related to the foregoing, careful due diligence is required (see also #4.).

Companies should immediately and thoroughly assess and identify all current activities and relations and continue to do so going forward. 

We recommend screening all entities and persons involved in transactions, including the UBOs, directors and representatives of the entities involved. Based on this assessment, the company should feel comfortable that funds and economic resources are not directly or indirectly being made available to sanctioned persons or parties and should have clear insight into the persons or parties receiving financial benefits, remuneration, compensation or any other type of advantage. In addition, companies should establish internal controls to mitigate the risk of funds or other economic resources being indirectly made available to sanctioned entities. 

With respect to the targeted sectors, it is important to bear in mind that the bans cover not only the sale of goods or services to Russian entities or persons, but also the sale of goods or services for use in or benefitting Russia. As such, it is important to identify the end user of certain goods or activities and to ensure that goods and activities included on the sanctions list will not be used in Russia and will not result in benefits there. 

When operating in sectors or networks targeted by sanctions, we recommend erring on the side of caution. 

Potential sanctions violations will often be assessed with hindsight bias - after funds or prohibited products have been made available to a sanctioned party - when it is difficult to demonstrate that sufficient measures were nonetheless taken to prevent a violation. Sanctions are interpreted broadly, based on the aim of the measures. In addition, almost all EU sanctions include a circumvention prohibition, meaning it is prohibited to participate, knowingly and intentionally, in activities whose object or effect is to circumvent the imposed sanctions. As a result, even if it could be argued that certain activities are not strictly prohibited, they could still fall under the scope of the restrictions if they have the effect of circumventing sanctions. 

Following the imposition of sanctions, companies should be attentive to the risk of being approached by companies in non-sanctioned countries, for the sole purpose of circumventing the sanctions. As a result, if new business opportunities arise in the coming weeks, it is extremely important to fully understand the underlying rationale for the transaction and to ensure that it is not to circumvent the sanctions regulations. 

Key questions:

• Are you fully aware of the identity of the parties to which you are providing goods or services, either directly or indirectly?  
• Do you operate in a targeted sector, sell products subject to restrictive measures, or provide services related to the foregoing?
• Did you receive sufficient information to verify that none of the parties you directly or indirectly deal with: is operating in a sanctioned country; is a sanctioned entity or person; is more than 50% owned by a sanctioned entity or person; is acting on behalf or at the direction of a sanctioned entity or person, or has a UBO, director, representative or shareholder who is are targeted?

If a transaction involves a sanctioned country, sanctioned entity or person and/or targeted sector, an assessment of the specific restrictions in place is required in order to determine whether this is allowed, taking into account the extensive interpretation and circumvention prohibition.